China and Serbia – Economy and Geopolitics

By Slaviša Batko Milačić 

The cooperation between Serbia and China became more visible during the rule of Aleksandar Vucic, but the basis for that cooperation was the Agreement on Economic and Technical Cooperation in the Field of Infrastructure, which was signed in 2009.

In the meantime, several Chinese projects have been realized in Serbia, mostly highways. Currently, the total debt of Serbia towards Chinese banks is slightly higher than a billion euros, according to the Serbian Ministry of Finance.

This means that the share of Chinese debt in Serbian total public debt (27 billion euros) is about three percent. While for instance in Montenegro the situation is far more difficult, where out of a total of 4.4 billion euros of public debt, Montenegro owes almost a quarter to Chinese creditors. So, at present, it cannot be said that Serbia, like neighbouring Montenegro, is falling into the Chinese debt trap.

However, as can be seen from the budget rebalance, several more planned projects are going to significantly increase Serbian debt to China. Serbia will borrow 710 million euros for the Belgrade-Zrenjanin highway. The Chinese Export-Import Bank will lend 680 million euros to the construction of the Belgrade bypass Bubanj Potok – Pancevo. Than Serbia will borrow 610 million dollars for the fast road Novi Sad – Ruma. For the Kolubara B thermal power plant – 440 million euros. The fast road Iverak – Lajkovac will be financed with a Chinese loan of 135 million euros. The wastewater treatment plant in Batajnica will cost Belgrade 135 million euros.

In total, that is a total of two and a half billion euros of new debt to the Chinese to the already existing billion euros. Than at least one and a half billion euros should be added to that, because that will be the price for Preljina to Boljare highway (completion of the highway from Belgrade to Montenegro).

When all figures are added up, we reach the amount of five billion euros. Also, a lex specialis about the Belgrade subway has arrived in the Serbian National Assembly, where, in addition to the participation of the French, it is expected that the first line, worth as much as 1.5 billion euros, will be also  built by a Chinese company. Previously, a lex specialis on infrastructure projects has already been adopted, which enables projects of special importance, for which interstate agreements have been concluded, to be implemented without a tender.

The Chinese are also planning to build a sewage infrastructure in Serbia and it is now estimated to be worth 3.5 billion euros. If all these announcements come true, the total Serbian debt to Chinese creditors could reach nine billion. Of course, in the meantime, Serbian GDP is going to grow, currently stands at about $ 61 billion.

However, due to large Chinese loans and investments, Serbia suffered criticism from the West. In general, politicians and analysts from the West believe that Serbia is becoming increasingly dependent on China, which will allow the geopolitical strengthening of China in Serbia and thus in the Western Balkans. When the Government of Serbia decided to sell Zelezara Smederevo (Serbian steel manufacturing conglomerate) to the Chinese Hesteel in 2016, the European Union officially asked Serbia for an explanation. Nevertheless, Zelezara Smederevo was sold to the Chinese Hesteel, and from then until today, the Chinese have increased their presence in Serbia

Meanwhile, Chinese have made investments in British steel industry. In March last year, the Chinese Jingye Group took over the British steel, which has had business problems for a long time and which, for example, was one of the main competitors to Serbia`s Smederevo Steel company in the spring of 2016. There was a great crisis on the world steel market at that time. For the then British Prime Minister David Cameron, this meant another five thousand redundancies, after four thousand steelworkers had lost their jobs due to the closure of small steelworks in Britain. So Cameron entered into negotiations with Hesteel, but in the end, this Chinese company decided to invest in Serbia.

Western countries also cooperate extensively with China. Italy, for example, recently officially joined the One Belt One Road initiative. China is one of Germany’s most important foreign trade partners, with a trade volume of no less than EUR 212 billion in 2020.

But the case of Great Britain is particularly interesting, as this country’s trade with China has reached the highest level in history. According to official British statistics, China was the sixth largest export market for Britain in 2020, with goods worth around £30 billion being exported. On the other hand, Britain imports even more Chinese goods, so the import of goods from China in 2020 reached as much as £49 billion, which is also an all-time record.

As an investor, China has entered almost all strategic sectors of the British economy. One of the few where China does not have access in Britain is the 5G network.

As well as owning the British Steel plant, China is co-financing the construction of a nuclear power station (Hinckley Point) with £20 billion.  And it is not the only nuclear power station built in Britain by Chinese state-owned companies. The state fund China Investment Corporation has 8.7% ownership of the water supply factory Thames Water, but also owns 10% of the shares in Heathrow Airport.

And it all started with a ride in a golden carriage in October 2015. Britain’s Queen Elizabeth II showed special honour to Chinese President Xi Jinping. Not only was the red carpet ready for the Chinese president, but all of London was ‘flushed’ with Chinese flags. The then Prime Minister David Cameron took the Chinese president to a beer pub, Etihad Stadium, and they even took selfies with Sergio Aguero, a famous Manchester City player. Despite these investments and relationships, the Western media do not declare China a coloniser of Britain, just the opposite.

If in a developed and economically strong Britain, Chinese investments do not bother, but the question is raised for Serbia, because it is a country that needs to strengthen itself economically, and for now, Chinese investments and loans make it possible. So the point is that instead of criticising and trying to stop Chinese investments in Serbia, the West should invest more economically in Serbia. Because an economically strong Serbia also means an economically strong and stable Western Balkans.

Author: Slavisha Batko Milacic  (Independent historian and analyst from Montenegro)

(The views expressed in this article belong  only to the author and do not necessarily reflect the editorial policy or views of World Geostrategic Insights).

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